Subject:  KANSAS v. UTILICORP UNITED, INC., Syllabus



 
    NOTE: Where it is feasible, a syllabus (headnote) will be released, as
is being done in connection with this case, at the time the opinion is
issued.  The syllabus constitutes no part of the opinion of the Court but
has been prepared by the Reporter of Decisions for the convenience of the
reader.  See United States v. Detroit Lumber Co., 200 U. S. 321, 337.
SUPREME COURT OF THE UNITED STATES


Syllabus


KANSAS et al. v. UTILICORP UNITED INC.


certiorari to the united states court of appeals for the tenth circuit

No. 88-2109.  Argued April 16, 1990--Decided June 21, 1990

The respondent--an investor owned public utility operating in the
petitioner States--and other utilities and natural gas purchasers filed
suit in the District Court against a pipeline company and five gas
producers under MDRV 4 of the Clayton Act, which authorizes any person
injured by a violation of the antitrust laws to sue for treble damages.
The utilities alleged that the defendants had unlawfully conspired to
inflate the price of gas that they supplied to the utilities and sought
treble damages for both the amount overcharged and the decrease in sales to
customers caused by the overcharge.  The petitioner States filed separate
MDRV 4 actions in the District Court against the same defendants for the
alleged antitrust violation, asserting, inter alia, parens patriae claims
on behalf of all natural persons residing in the States who had purchased
gas from any utility at inflated prices.  The court consolidated all of the
actions and granted the utilities partial summary judgment with respect to
the defendants' defense that, since the utilities had passed through all of
the alleged overcharge to their customers, the utilities lacked standing
because they had suffered no antitrust injury as required by MDRV 4.  In
light of its conclusion that, under Hanover Shoe, Inc. v. United Shoe
Machinery Corp., 392 U. S. 481, and Illinois Brick Co. v. Illinois, 431 U.
S. 720, the utilities had suffered antitrust injury as direct purchasers
but their customers, as indirect purchasers, had not, the court dismissed
the States' parens patriae claims.  The Court of Appeals affirmed the
dismissals.

Held: When suppliers violate antitrust laws by overcharging a public
utility for natural gas, and the utility passes on the overcharge to its
customers, only the utility has a cause of action under MDRV 4 because it
alone has suffered antitrust injury.  Pp. 3-16.

    1. Three rationales underlie the indirect purchaser rule adopted in
Hanover Shoe and Illinois Brick: (1) establishing the amount of an
overcharge shifted to indirect purchasers would normally prove
insurmountable in light of the wide range of considerations influencing a
company's pricing decisions; (2) a pass-on defense would reduce the
effectiveness of MDRV 4 actions by diminishing the recovery available to
any potential plaintiff; and (3) allowing suits by indirect purchasers
would risk multiple liability because the alleged antitrust violators could
not use a pass-on defense in an action by the direct purchasers.  Pp. 3-5.

    2. The aforesaid rationales compel the conclusion that no exception to
the indirect purchaser rule should be made for suits involving regulated
public utilities that pass on all of their costs to their customers.  Pp.
5-14.

    (a) Allowing indirect suits in such cases might necessitate complex
cost apportionment calculations, since a utility bears at least some
portion of a passed-on overcharge to the extent that it could have sought
and gained state permission to raise its rates in the absence of the
overcharge, cf. Hanover Shoe, supra, at 493, and n. 9, and since various
factors, such as the need to seek regulatory approval, may delay the
passing on process and thereby require the utility, in the interim, to bear
some of the overcharge's costs in the form of lower earnings.  Here, the
certified question leaves unclear whether the respondent could have raised
its prices prior to the overcharge, whether it had passed on "most or all"
of its costs at the time of its suit, and even the means by which the pass
through occurred.  Proof of these preliminary issues, which are irrelevant
to the defendants' liability, would turn upon the intricacies of state law,
and, if it were determined that respondent had borne some of the costs,
would require the adoption of an apportionment formula, the very complexity
that Hanover Shoe and Illinois Brick sought to avoid.  Moreover, creating
an exception in such cases would make little sense when, in light of all
its difficulty, its practical significance is diminished by the fact that
some States require utilities to pass on at least some of the recovery
obtained in a MDRV 4 suit to their customers. Pp. 5-9.

    (b) Even if the risk of multiple recoveries would be eliminated by
allowing the petitioners to recover only the amount of the overcharge and
the respondent to recover only damages for its lost sales in a single
lawsuit, the additional complexity thereby introduced into a case that
already has become quite complicated argues strongly for retaining the
indirect purchaser rule.  See Illinois Brick, supra, at 731, n. 11.  Pp.
10-11.

    (c) Allowing indirect suits by utility customers would not better
promote the goal of vigorous enforcement of the antitrust laws.
Petitioners' argument that utilities lack incentives to sue overcharging
suppliers is unpersuasive, since utilities may bring MDRV 4 actions in some
instances for fear that regulators will not allow them to shift known and
avoidable overcharges on to their customers; since there is no authority
indicating that utilities, which may have to pass on MDRV 4 damages
recovered, would also have to pay the entire exemplary portion of these
damages to customers; and since utilities, in fact, have an established
record of diligent and successful antitrust enforcement.  On the other
hand, indirect purchaser actions might be ineffective because consumers may
lack the expertise and experience necessary to detect improper pricing by a
utility's suppliers, while state attorneys general may hesitate to exercise
the parens patriae device in cases involving smaller, more speculative harm
to consumers, and, in any event, may sue only on behalf of resident natural
persons, leaving nonresidents and small businesses to fend for themselves.
Pp. 11-13.

    (d) Although the rationales of Hanover Shoe and Illinois Brick may not
apply with equal force in all instances, ample justifications exist for the
Court's stated decision not to carve out exceptions to the indirect
purchaser rule for particular types of markets.  Illinois Brick, supra, at
744-745.  Even assuming that any economic assumptions underlying the rule
might be disproved in a specific case, it would be an unwarranted and
counterproductive exercise to litigate a series of exceptions.  Pp. 13-14.

    3. The suggestion in Hanover Shoe, supra, at 494, and Illinois Brick,
supra, at 736, that a departure from the indirect purchaser rule may be
necessary when such a purchaser buys under a pre-existing cost-plus
contract does not justify an exception in this case, since the respondent
did not sell gas to its customers under such a contract.  Even if an
exception could be created for situations that merely resemble those
governed by such contracts, that exception could not be applied here, since
there is no certainty that the respondent has borne no portion of the
overcharge and otherwise suffered no injury.  Pp. 14-15.

    4. Section 4C of the Hart-Scott-Rodino Antitrust Improvements Act of
1976--which authorizes States to bring parens patriae actions on behalf of
resident natural persons to secure monetary relief for property injury
sustained by reason of certain antitrust violations--does not authorize the
petitioners to sue on behalf of consumers notwithstanding the consumers'
status as indirect purchasers.  Section 4C did not establish any new
substantive liability, but simply created a new procedural device to
enforce existing rights of recovery under MDRV 4 of the Clayton Act,
Illinois Brick, supra, at 734, n. 14, which rights belong to the respondent
in this case.  Pp. 15-16.

866 F. 2d 1286, affirmed.

    Kennedy, J., delivered the opinion of the Court, in which Rehnquist, C.
J., and Stevens, O'Connor, and Scalia, JJ., joined.  White, J., filed a
dissenting opinion, in which Brennan, Marshall, and Blackmun, JJ., joined.

------------------------------------------------------------------------------




Subject: 88-2109--OPINION, KANSAS v. UTILICORP UNITED, INC.

 


NOTICE: This opinion is subject to formal revision before publication in
the preliminary print of the United States Reports.  Readers are requested
to notify the Reporter of Decisions, Supreme Court of the United States,
Washington, D. C. 20543, of any typographical or other formal errors, in
order that corrections may be made before the preliminary print goes to
press.
SUPREME COURT OF THE UNITED STATES


No. 88-2109



KANSAS AND MISSOURI, ETC., PETITONERS v. UTILICORP UNITED, INC.

on writ of certiorari to the united states court of appeals for the tenth
circuit

[June 21, 1990]



    Justice Kennedy delivered the opinion of the Court.
    Section 4 of the Clayton Act, 38 Stat. 731, as amended, 15 U. S. C.
MDRV 15, authorizes any person injured by a violation of the antitrust laws
to sue for treble damages, costs, and an attorney's fee.  We must decide
who may sue under MDRV 4 when, in violation of the antitrust laws,
suppliers overcharge a public utility for natural gas and the utility
passes on the overcharge to its customers.  Consistent with Hanover Shoe,
Inc. v. United Shoe Machinery Corp., 392 U. S. 481 (1968), and Illinois
Brick Co. v. Illinois, 431 U. S. 720 (1977), we hold that only the utility
has the cause of action because it alone has suffered injury within the
meaning of MDRV 4.

I
    The respondent, Utilicorp United Inc., an investor owned public utility
operating in Kansas and Western Missouri, purchased natural gas from a
pipeline company for its own use and for resale to its commercial and
residential customers.  Together with a second utility and several other
gas purchasers, the respondent sued the pipeline company and five gas
production companies in the United States District Court for the District
of Kansas.  The utilities alleged that the defendants had conspired to
inflate the price of their gas in violation of the antitrust laws.  They
sought treble damages, pursuant to MDRV 4 of the Clayton Act, for both the
amount overcharged by the pipeline company and the decrease in sales to
their customers caused by the overcharge.
    The petitioners, the States of Kansas and Missouri, initiated separate
MDRV 4 actions in the District Court against the same defendants for the
alleged antitrust violation.  Acting as parens patriae, the petitioners
asserted the claims of all natural persons residing within Kansas and
Missouri who had purchased gas from any utility at inflated prices.  They
also asserted claims as representatives of state agencies, municipalities,
and other political subdivisions that had purchased gas from the
defendants.  The District Court consolidated all of the actions.
    The defendants, in their answer, asserted that the utilities lacked
standing under MDRV 4.  They alleged that, pursuant to state and municipal
regulations and tariffs filed with state regulatory agencies, the utilities
had passed through the entire wholesale cost of the natural gas to their
customers.  As a result, the defendants contended, the utility customers
had paid 100 percent of the alleged overcharge, and the utilities had
suffered no antitrust injury as required by MDRV 4.
    The utilities moved for partial summary judgment with respect to this
defense and the District Court granted their motion.  The court ruled that
our decisions in Hanover Shoe and Illinois Brick controlled its
interpretation of MDRV 4.  It read these cases to hold that a direct
purchaser from an antitrust violator suffers injury to the full extent of
an illegal overcharge even if it passes on some or all of the overcharge to
its customers.  The District Court concluded that utilities, as direct
purchasers, had suffered antitrust injury, but that their customers, as
indirect purchasers, had not.
    In light of its ruling, the District Court chose to treat the partial
summary judgment motion as a motion to dismiss the petitioners' parens
patriae claims.  It then granted this motion but allowed the petitioners to
take an interlocutory appeal under 28 U. S. C. MDRV 1292(b).  It certified
the following question to the Court of Appeals:
"In a private antitrust action under 15 U. S. C. MDRV 15 involving claims
of price fixing against the producers of natural gas, is a State a proper
plaintiff as parens patriae for its citizens who paid inflated prices for
natural gas, when the lawsuit already includes as plaintiffs those public
utilities who paid the inflated prices upon direct purchase from the
producers and who subsequently passed on most or all of the price increase
to the citizens of the State?"  In re Wyoming Tight Sands Antitrust Cases,
695 F. Supp. 1109, 1120 (Kan. 1988).


The Court of Appeals answered the question in the negative.  It agreed with
District Court that Hanover Shoe and Illinois Brick required dismissal of
the parens patriae claims.  See In re Wyoming Tight Sands Antitrust Cases,
866 F. 2d 1286, 1294 (CA10 1989).  We granted certiorari to resolve a
conflict between this decision and Illinois ex rel. Hartigan v. Panhandle
Eastern Pipe Line Co., 852 F. 2d 891 (CA7 1988) (en banc).  493 U. S. ----
(1989).  We now affirm.

II
    Section 4 of the Clayton Act provides in full:
"[A]ny person who shall be injured in his business or property by reason of
anything forbidden in the antitrust laws may sue therefor in any district
court of the United States in the district in which the defendant resides
or is found or has an agent, without respect to the amount in controversy,
and shall recover threefold the damages by him sustained, and the cost of
suit, including a reasonable attorney's fee."  15 U. S. C. MDRV 15(a).


As noted by the District Court and the Court of Appeals, we have applied
this section in two cases involving allegations that a direct purchaser had
passed on an overcharge to its customers.
    In Hanover Shoe, Inc. v. United Shoe Machinery Corp., supra, Hanover
alleged that United had monopolized the shoe manufacturing machinery
industry in violation of MDRV 2 of the Sherman Act, 26 Stat. 209, as
amended, 15 U. S. C. MDRV 2.  It sought treble damages under MDRV 4 of the
Clayton Act for overcharges paid in leasing certain machinery from United.
United defended, in part, on the ground that Hanover had passed on the
overcharge to its customers and, as a result, had suffered no injury.  We
rejected the defense for two reasons.  First, noting that a wide range of
considerations may influence a company's pricing decisions, we concluded
that establishing the amount of an overcharge shifted to indirect
purchasers "would normally prove insurmountable."  392 U. S., at 493.
Second, we reasoned that a pass-on defense would reduce the effectiveness
of MDRV 4 actions by diminishing the recovery available to any potential
plaintiff.  See id., at 494.
    In Illinois Brick Co. v. Illinois, 431 U. S. 720 (1977), we applied
these considerations to reach a similar result.  The State of Illinois sued
Illinois Brick and other concrete block manufacturers for conspiring to
raise the cost of concrete blocks in violation of MDRV 1 of the Sherman
Act, 26 Stat. 209, as amended, 15 U. S. C. MDRV 1.  We ruled that the State
had suffered no injury within the meaning of MDRV 4 because Illinois Brick
had not sold any concrete blocks to it.  The company, instead, had sold the
blocks to masonry subcontractors, who in turn had sold them to the State's
general contractors.  We decided that, because Illinois Brick could not use
a pass-on defense in an action by direct purchasers, it would risk multiple
liability to allow suits by indirect purchasers.  See 431 U. S., at
730-731.  We declined to overrule Hanover Shoe or to create exceptions for
any particular industries.  See id., at 735-736, 744-745.
    Like the State of Illinois in Illinois Brick, the consumers in this
case have the status of indirect purchasers.  In the distribution chain,
they are not the immediate buyers from the alleged antitrust violators.
They bought their gas from the utilities, not from the suppliers said to
have conspired to fix the price of the gas.  Unless we create an exception
to the direct purchaser rule established in Hanover Shoe and Illinois
Brick, any antitrust claim against the defendants is not for them, but for
the utilities to assert.
    The petitioners ask us to allow them to press the consumers' claims for
three reasons.  First, they assert that none of the rationales underlying
Hanover Shoe or Illinois Brick exist in cases involving regulated public
utilities.  Second, they argue that we should apply an exception, suggested
in Illinois Brick, for actions based upon cost-plus contracts.  Third, they
maintain that MDRV 4C of the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, 90 Stat. 1394-1396, as amended, 15 U. S. C. MDRV 15c, authorizes
them to assert claims on behalf of utility customers even if the customers
could not assert any claims themselves.  Affirming the Court of Appeals, we
reject each of these contentions in turn.

III
    The petitioners assert that we should allow indirect purchaser suits in
cases involving regulated public utilities that pass on 100 percent of
their costs to their customers.  They maintain that our concerns in Hanover
Shoe and Illinois Brick about the difficulties of apportionment, the risk
of multiple recovery, and the diminution of incentives for private
antitrust enforcement would not exist in such cases.  We disagree.
Although the rationales of Hanover Shoe and Illinois Brick may not apply
with equal force in all instances, we find it inconsistent with precedent
and imprudent in any event to create an exception for regulated public
utilities.

A
    The direct purchaser rule serves, in part, to eliminate the
complications of apportioning overcharges between direct and indirect
purchasers.  See Hanover Shoe, supra, at 493; Illinois Brick, supra, at
740-742; Blue Shield of Virginia v. McCready, 457 U. S. 465, 475, n. 11
(1982).  The petitioners find the rule unnecessary, in this respect, when a
utility passes on its costs to its customers pursuant to state regulations
or tariffs filed with a utility commission.  In such cases, they assert,
the customers pay the entire overcharge, obviating litigation over its
apportionment.  They maintain that they can prove the exact injury to the
residential customers whom they represent because the respondent made
periodic public filings showing the volume and price of gas that it sold to
these consumers.  They ask us to allow them to sue for the entire amount of
the overcharge and to limit the respondent's recovery to damages for its
lost business.
    The petitioners have oversimplified the apportionment problem in two
respects.  First, an overcharge may injure a utility, apart from the
question of lost business, even if the utility raises its rates to offset
its increased costs.  As we explained in Hanover Shoe:
"The mere fact that a price rise followed an unlawful cost increase does
not show that the sufferer of the cost increase was undamaged.  His
customers may have been ripe for his price rise earlier; if a cost rise is
merely the occasion for a price increase a businessman could have imposed
absent the rise in his costs, the fact that he was earlier not enjoying the
benefits of the higher price should not permit the supplier who charges an
unlawful price to take those benefits from him without being liable for
damages.  This statement merely recognizes the usual principle that the
possessor of a right can recover for its unlawful deprivation whether or
not he was previously exercising it."  392 U. S., at 493, n. 9.


In other words, to show that a direct purchaser has borne no portion of an
overcharge, the indirect purchaser would have to prove, among other things,
that the direct purchaser could not have raised its rates prior to the
overcharge.
    In Hanover Shoe, however, we decided not to allow proof of what the
direct purchaser might have done because of the "nearly insuperable
difficulty" of the issue.  Id., at 493.  The petitioners assume that the
presence of state regulation would make the proof less difficult here.  We
disagree.  The state regulation does not simplify the problem but instead
imports an additional level of complexity.  To decide whether a utility has
borne an overcharge, a court would have to consider not only the extent to
which market conditions would have allowed the utility to raise its rates
prior to the overcharge, as in the case of an unregulated business, but
also what the state regulators would have allowed.  In particular, to
decide that an overcharge did not injure a utility, a court would have to
determine that the State's regulatory schemes would have barred any rate
increase except for the amount reflected by cost increases.  Proof of this
complex preliminary issue, one irrelevant to the liability of the
defendant, would proceed on a case by case basis and would turn upon the
intricacies of state law.
    From the certified question in this case, we do not know whether the
respondent could have raised its prices prior to the overcharge.  Its
customers may have been willing to pay a greater price and the Kansas and
Missouri regulators may have allowed a rate increase based on factors other
than strict costs.  See Midwest Gas Users Assn. v. State Corporation
Comm'n, 5 Kan. App. 2d 653, 661, 623 P. 2d 924, 931 (1981); State ex rel.
Associated Natural Gas Co. v. Public Service Comm'n, 706 S. W. 2d 870,
879-880 (Mo. App. 1985).  To the extent that the respondent could have
sought and gained permission to raise its rates in the absence of an
overcharge, at least some portion of the overcharge is being borne by it;
whether by overcharge or by increased rates, consumers would have been
paying more for natural gas than they had been paying in the past.  Because
of this potential injury, the respondent must remain in the suit.  If we
were to add indirect purchasers to the action, we would have to devise an
apportionment formula.  This is the very complexity that Hanover Shoe and
Illinois Brick sought to avoid.
    Second, difficult questions of timing might necessitate apportioning
overcharges if we allowed indirect suits by utility customers.  Even if, at
some point, a utility can pass on 100 percent of its costs to its
customers, various factors may delay the passing on process.  Some
utilities must seek approval from the governing regulators prior to raising
their rates.  Other utilities, pursuant to Purchase Gas Adjustment clauses
(PGAs) filed with state regulators, may adjust their rates to reflect
changes in their wholesale costs according to prearranged formulas without
seeking regulatory approval in each instance.  Yet, even utilities that use
PGAs often encounter some delay.  See Brief for State of Illinois as Amicus
Curiae 9, n. 11 (describing the various time lags under a typical PGA
between the increase in a utility's wholesale costs and the rise in
consumer rates).  During any period in which a utility's costs rise before
it may adjust its rates, the utility will bear the costs in the form of
lower earnings.  See S. Breyer, Regulation and its Reform 48-49 (1982).
Even after the utility raises its rates, moreover, the pass through process
may take time to complete.  During this time, the utility and its customers
each would pay for some of the increased costs.
    In this case, we could not deprive the respondent of its MDRV 4 action
without first determining that the passing on process in fact had allowed
it to shift the entire overcharge to its customers.  The certified
question, however, leaves unclear whether the respondent had passed on
"most or all" of its costs at the time of the suit.  In addition, even the
means by which the pass through occurred remain unsettled.  The petitioners
allege that, pursuant to formulas in PGAs filed with the Kansas Corporation
Commission and the Missouri Public Service Commission, the respondent
"automatically" adjusted some of its rates to reflect increases in the
wholesale cost of gas.  Brief for Petitioners 5, n. 5.  The respondent,
however, maintains that PGAs did not govern all of its sales.  See Brief
for Respondent 17.  The difficulties posed by issues of this sort led us to
adopt the direct purchaser rule, and we must decline to create an exception
that would require their litigation.  As we have stated before, "the task
of disentangling overlapping damages claims is not lightly to be imposed
upon potential antitrust litigants, or upon the judicial system."  McReady,
457 U. S., at 475, n. 11.
    In addition to these complications, the regulation of utilities itself
may make an exception to Illinois Brick unnecessary.  Our decisions in
Hanover Shoe and Illinois Brick often deny relief to consumers who have
paid inflated prices because of their status as indirect purchasers.  See 2
P. Areeda & D. Turner, Antitrust Law MDRV 337e, pp. 193-194 (1978); Harris
& Sullivan, Passing on the Monopoly Overcharge: A Comprehensive Policy
Analysis, 128 U. Pa. L. Rev. 269, 342 (1979).  Although one might criticize
Illinois Brick for this consequence in other circumstances, the criticism
may have less validity in the context of public utilities.  Both the Court
of Appeals in this case and the Seventh Circuit in Illinois ex rel.
Hartigan v. Panhandle Eastern Pipeline Co., 852 F. 2d 891 (CA7 1988), have
suggested that state regulators would require the utilities to pass on at
least some of the recovery obtained in a MDRV 4 suit.  See Wyoming Tight
Sands, 866 F. 2d, at 1291; Panhandle Eastern, supra, at 895.  State
regulators have followed this approach elsewhere.  See, e. g., In re:
Petition of LP&L for Order Relating to Disposition of Proceeds Against Gas
Supplier, 1989 La. PUC LEXIS 3, 31-32 (Nos. U-17906, U-12636, and U-17649)
(requiring Louisiana Power & Light Co., which won a $190 million judgment
against United Gas Pipe Line Co., to flow the proceeds back to ratepayers
through reduced rates over a 5- year period).  If Kansas and Missouri
impose similar requirements, then even if the customers cannot sue the
alleged antitrust violaters, they may receive some of the compensation
obtained by the respondent.  Creating an exception to allow apportionment
in violation of Illinois Brick would make little sense when, in light of
all its difficulty, its practical significance is so diminished.

B
    The Illinois Brick rule also serves to eliminate multiple recoveries.
See Illinois Brick, 431 U. S., at 730-731; McCready, supra, at 474.  The
petitioners assert that no risk of multiple recovery would exist here, if
we allowed them to sue, because the direct and indirect purchasers would be
seeking different, not duplicative, damages; the petitioners would recover
the amount of the overcharge and the utilities would recover damages for
their lost sales.  Leaving aside the apportionment issue, we reject the
argument in this case, just as we did in Illinois Brick.  Bringing all
classes of direct and indirect purchasers together in a single lawsuit may
reduce the risk of multiple recovery, but the reduction comes at too great
a cost.  See Illinois Brick, supra, at 731 n. 11.
    This case already has become quite complicated.  It involves numerous
utilities and other companies operating in several states under federal,
state, and municipal regulation and, in some instances, under no rate
regulation at all.  Even apart from gas sold to customers, the utilities
seek damages for lost sales and for gas purchased for their own use.  The
petitioners, in addition to their parens patriae claims, are asserting
direct claims on behalf of numerous state agencies.  Other direct
purchasers also seek several measures of damages.  Allowing the petitioners
to proceed on behalf of consumers would complicate the proceedings further.
Even if they could represent consumers residing in Kansas and Missouri,
they could not represent industrial and commercial purchasers or consumers
from other states.  See 15 U. S. C. MDRV 15c(a)(1) (extending parens
patriae representation only to resident natural persons).  These
unrepresented consumers might seek intervention and further delay the
prompt determination of the suit.  The expansion of the case would risk the
confusion, costs, and possibility of error inherent in complex litigation.
At the same time, however, it might serve little purpose because, as noted
above, state regulatory law may provide appropriate relief to consumers
even if they cannot sue under MDRV 4.  As in Illinois Brick, we continue to
believe that "even if ways could be found to bring all potential plaintiffs
together in one huge action, the complexity thereby introduced into
treble-damages proceedings argues strongly for retaining the Hanover Shoe
rule."  431 U. S., at 731, n. 11.

C
    We have maintained, throughout our cases, that our interpretation of
MDRV 4 must promote the vigorous enforcement of the antitrust laws.  See
Hanover Shoe, 392 U. S., at 493; Illinois Brick, supra, at 746; McReady,
supra, at 475, n. 11; California v. ARC America Corp., 490 U. S. ----,
----, n. 6 (1989).  If we were convinced that indirect suits would secure
this goal better in cases involving utilities, the argument to interpret
MDRV 4 to create the exception sought by the petitioners might be stronger.
On balance, however, we do not believe that the petitioners can prevail in
this critical part of the case.  The petitioners assert that utilities,
such as the respondent, lack the incentive to prosecute MDRV 4 cases for
two reasons.  First, they state that utilities, by law, may pass on their
costs to customers.  Second, they surmise that utilities might have to pass
on damages recovered in a MDRV 4 action.  In other words, according to the
petitioners, utilities lose nothing if they do not sue and gain nothing if
they do sue.  In contrast, the petitioners maintain, the large aggregate
claims of residential consumers will give state attorneys general ample
motivation to sue in their capacity as parens patriae.
    The petitioners' argument does not persuade us that utilities will lack
incentives to sue overcharging suppliers.  Utilities may bring MDRV 4
actions in some instances for fear that regulators will not allow them to
shift known and avoidable overcharges on to their customers.  See Kan.
Stat. Ann. MDRV 66-128a (1985) (allowing the state commission to "review
and evaluate the efficiency or prudence of any actions . . . of any public
utility or common carrier for the purpose of establishing fair and
reasonable rates"); Mo. Rev. Stat. MDRV 393.150 (1986) (interpreted in
State ex rel. Associated Natural Gas Co. v. Public Service Comm'n, 706 S.
W. 2d 870, 879-880 (Mo. App. 1985), to give regulators "considerable
discretion" in setting gas rates).  In addition, even if state law would
require a utility to reimburse its customers for recovered overcharges, a
utility may seek treble damages in a MDRV 4 action.  The petitioners have
cited no authority indicating that a victorious utility would have to pay
the entire exemplary portion of these damages to its customers.
    Utilities, moreover, have an established record of diligent antitrust
enforcement, having brought highly successful MDRV 4 actions in many
instances.  The well-known group of actions from the 1960s involving
overcharges for electrical generating equipment provides an excellent
example.  In these cases, which involved "a series of horizontal
price-fixing conspiracies characterized as the most shocking in the history
of the Sherman Act, plaintiff utilities . . . recover[ed] in unprecedented
sums" even though some of the utilities "passed on to their own customers
whatever higher costs they incurred as a consequence of the alleged
conspiracies."  Pollock, Standing to Sue, Remoteness of Injury, and the
Passing-On Doctrine, 32 A. B. A. Antitrust L. J. 5, 10-11 (1966).  The
courts in these suits, even before the Hanover Shoe and Illinois Brick
decisions, considered the pass-on issue and held that the causes of action
were for the utilities to assert.  See, e. g., Commonwealth Edison Co. v.
Allis-Chalmers Mfg. Co., 335 F. 2d 203, 208 (CA7 1964); Ohio Valley
Electric Corp. v. General Electric Co., 244 F. Supp. 914, 949-951 (SDNY
1965).  Various factors may have prompted these and other utility actions.
For example, in addition to the reasons stated above, the respondent
asserts that, like any business, an investor owned utility has an interest
in protecting its market.  But whatever the motivation for their MDRV 4
suits, this history makes us quite hesitant to take from the utilities the
responsibility for enforcing the antitrust laws.
    Relying on indirect purchaser actions in utility cases might fail to
promote antitrust enforcement for other reasons.  Consumers may lack the
expertise and experience necessary for detecting improper pricing by a
utility's suppliers.  See Landes & Posner, The Economics of Passing On: A
Reply to Harris and Sullivan, 128 U. Pa. L. Rev. 1274, 1278-1279 (1980).
Although state attorneys general have greater expertise, they may hesitate
to exercise the parens patriae device in cases involving smaller, more
speculative harm to consumers.  See Landes & Posner, Should Indirect
Purchasers Have Standing to Sue Under the Antitrust Laws?  An Economic
Analysis of the Rule of Illinois Brick, 46 U. Chi. L. Rev. 602, 613 (1979).
See also Illinois Brick, 431 U. S., at 745 (stating that, in indirect
actions, "the uncertainty of how much of an overcharge could be established
. . . [and] the uncertainty of how that overcharge would be apportioned . .
. would further reduce the incentive to sue").  And even when state
attorneys general decide to bring parens patriae actions, they may sue only
on behalf of resident natural persons.  See 15 U. S. C. MDRV 15c(a)(1).
All others, including nonresidents and small businesses, might fail to
enforce their claims because of the insignificance of their individual
recoveries.  For these reasons, we remain unconvinced that the exception
sought by the petitioners would promote antitrust enforcement better than
the current Illinois Brick rule.

D
    The preceding conclusions bring us to a broader point.  The rationales
underlying Hanover Shoe and Illinois Brick will not apply with equal force
in all cases.  We nonetheless believe that ample justification exists for
our stated decision not to "carve out exceptions to the [direct purchaser]
rule for particular types of markets."  Illinois Brick, 431 U. S., at 744.
The possibility of allowing an exception, even in rather meritorious
circumstances, would undermine the rule.  As we have stated:

"[T]he process of classifying various market situations according to the
amount of pass-on likely to be involved and its susceptibility of proof in
a judicial forum would entail the very problems that the Hanover Shoe rule
was meant to avoid.  The litigation over where the line should be drawn in
a particular class of cases would inject the same `massive evidence and
complicated theories' into treble-damages proceedings, albeit at a somewhat
higher level of generality."  Id., at 744-745.


In sum, even assuming that any economic assumptions underlying the Illinois
Brick rule might be disproved in a specific case, we think it an
unwarranted and counterproductive exercise to litigate a series of
exceptions.  Having stated the rule in Hanover Shoe, and adhered to it in
Illinois Brick, we stand by our interpretation of MDRV 4.

III
    The suggestion in Hanover Shoe and Illinois Brick that a departure from
the direct purchaser rule may be necessary when an indirect purchaser buys
under a pre-existing cost- plus contract does not justify an exception in
this case.  In Hanover Shoe, we stated:
"We recognize that there might be situations--for instance, when an
overcharged buyer has a pre-existing `cost-plus' contract, thus making it
easy to prove that he has not been damaged--where the considerations
requiring that the passing-on defense not be permitted in this case would
not be present."  392 U. S., at 494.


We observed further in Illinois Brick:
"In [a cost-plus contract] situation, the [direct] purchaser is insulated
from any decrease in its sales as a result of attempting to pass on the
overcharge, because its customer is committed to buying a fixed quantity
regardless of price.  The effect of the overcharge is essentially
determined in advance, without reference to the interaction of supply and
demand that complicates the determination in the general case."  431 U. S.,
at 736.


The petitioners argue that the regulations and tariffs requiring the
respondent to pass on its costs to the consumers place this case within the
cost-plus contract exception.  We disagree.
    The respondent did not sell the gas to its customers under a
pre-existing cost-plus contract.  Even if we were to create an exception
for situations that merely resemble those governed by such a contract, we
would not apply the exception here.  Our statements above show that we
might allow indirect purchasers to sue only when, by hypothesis, the direct
purchaser will bear no portion of the overcharge and otherwise suffer no
injury.  That certainty does not exist here.   The utility customers made
no commitment to purchase any particular quantity of gas, and the utility
itself had no guarantee of any particular profit.  Even though the
respondent raised its prices to cover its costs, we cannot ascertain its
precise injury because, as noted above, we do not know what might have
happened in the absence of an overcharge.  In addition, even if the utility
customers had a highly inelastic demand for natural gas, see Panhandle
Eastern, 852 F. 2d, at 895, the need to inquire into the precise operation
of market forces would negate the simplicity and certainty that could
justify a cost-plus contract exception.  See Illinois Brick, supra, at 742;
P. Areeda & H. Hoven camp, Antitrust Law MDRV 337.3c, pp. 323-324 (Supp.
1988).  Thus, although we do not alter our observations about the
possibility of an exception for cost-plus contracts, we decline to create
the general exception for utilities sought by the petitioners.

IV
    The petitioners, in their final argument, contend that MDRV 4C of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, 90 Stat. 1394, as
amended, 15 U. S. C. MDRV 15c, authorizes them to sue on behalf of
consumers even though the consumers, as indirect purchasers, have no cause
of action of their own.  Section 4C(a)(1) provides in relevant part:
"Any attorney general of a State may bring a civil action in the name of
such state as parens patriae on behalf of natural persons residing in such
State . . . to secure monetary relief as provided in this section for
injury sustained by such natural persons to their property by reason of any
violation of sections 1 to 7 of this title."  15 U. S. C. MDRV 15c(a)(1).


Because the Act, in their view, has the clear purpose of protecting
consumers, see Kintner, Griffin, & Goldston, The Hart-Scott-Rodino
Antitrust Improvements Act of 1976: An Analysis, 46 Geo. Wash. L. Rev. 1,
23 (1977), the petitioners contend that it must allow the States to sue on
behalf of consumers notwithstanding their status as indirect purchasers.
We have rejected this argument before.  We stated in Illinois Brick that
MDRV 4C did not establish any new substantive liability.  Instead, "[i]t
simply created a new procedural device--parens patriae actions by States on
behalf of their citizens--to enforce existing rights of recovery under MDRV
4 [of the Clayton Act.]"  431 U. S., at 734, n. 14.  Section 4, as noted
above, affords relief only to a person "injured in his business or property
by reason of anything forbidden in the antitrust laws."  15 U. S. C. MDRV
15(a).  State attorneys general may bring actions on behalf of consumers
who have such an injury.  See, e. g., Pennsylvania v. Mid-Atlantic Toyota
Distributors, Inc., 704 F. 2d 125, 128 (CA4 1983) (suit on behalf of
consumers injured by an alleged conspiracy to fix the price of cars).  But
here the respondent is the injured party under the antitrust laws and the
predicate for a parens patriae action has not been established.  We
conclude that the petitioners may not assert any claims on behalf of the
customers.
Affirmed.
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Subject: 88-2109--DISSENT, KANSAS v. UTILICORP UNITED, INC.

 


    SUPREME COURT OF THE UNITED STATES


No. 88-2109



KANSAS AND MISSOURI, ETC., PETITONERS v. UTILICORP UNITED, INC.

on writ of certiorari to the united states court of appeals for the tenth
circuit

[June 21, 1990]



    Justice White, with whom Justice Brennan, Justice Marshall, and Justice
Blackmun join, dissenting.

    I dissent from the Court's opinion and judgment because it is
inappropriate for the Court to deny standing to sue under MDRV 4 of the
Clayton Act, 15 U. S. C. MDRV 15, to customers of a regulated utility in
circumstances such as those presented in this case.  By its plain language,
MDRV 4 reflects an " `expansive remedial purpose.' "  Blue Shield of
Virginia v. McCready, 457 U. S. 465, 472 (1982) (citation omitted).  It
does not distinguish between classes of customers, but rather grants a
cause of action to "any person who shall be injured in his business or
property by reason of anything forbidden in the antitrust laws . . . ."  15
U. S. C. MDRV 15(a).  In enacting MDRV 4, Congress sought to ensure that
victims of anticompetitive conduct receive compensation.  Blue Shield,
supra, at 472; Pfizer, Inc. v. India, 434 U. S. 308, 314 (1978).
    In Illinois Brick Co. v. Illinois, 431 U. S. 720 (1977), we held that
certain indirect purchasers of concrete block lacked standing to challenge
the manufacturer's business practices under the antitrust laws because they
could not be deemed to have suffered injury from the alleged illegal
conduct.  This suit, however, is very different from Illinois Brick.  That
case involved a competitive market where concrete block manufacturers sold
to masonry contractors who in turn sold to general contractors who in turn
sold to the Illinois Brick respondents; this case involves a highly
regulated market where utilities possessing natural monopolies purchase gas
from natural gas suppliers and then sell the gas to residential customers.
Illinois Brick did not hold that, in all circumstances, indirect purchasers
lack MDRV 4 standing.  Indeed, just last Term we observed that under
Illinois Brick "indirect purchasers might be allowed to bring suit in cases
in which it would be easy to prove the extent to which the overcharge was
passed on to them."  California v. ARC America Corp., 490 U. S. ----, ----,
and n. 6 (1989).  See also, Hanover Shoe, Inc. v. United Shoe Machinery
Corp., 392 U. S. 481, 494 (1968).
    The issue in this case is whether Illinois Brick bars a suit by retail
customers to whom the utilities have passed on the entire cost of the gas
sold to them, including any illegal overcharge.  Before the District Court,
the utilities moved to dismiss the States as parens patriae arguing that
the States lacked standing because they represented indirect purchasers.
In response, the States contended that the indirect purchasers were proper
plaintiffs because the utilities had passed through the entire overcharge
to their residential customers.  The District Court found it unnecessary
"to wait upon evidence establishing the degree to which the utilities
passed on the overcharge", In Re Wyoming Tight Sands Antitrust Cases, 695
F. Supp. 1109, 1116 (Kan. 1988), for even accepting the State's position
that there had been a total pass-on, decisions of this Court were thought
to bar the suit.  Likewise, in affirming the District Court, the Court of
Appeals presumed a "perfect and provable pass-on of the allegedly illegal
overcharge."  In re Wyoming Tight Sands Antitrust Cases, 866 F. 2d 1286,
1293 (CA10 1989).  Indeed, the Vice President and General Counsel of one of
the respondent utilities is on record as stating that the utility's
customers "pay all of any increases in the cost of natural gas [Kansas
Power & Light] must purchase to serve them." Affidavit of David S. Black,
Vice President and General Counsel of the Kansas Power & Light Company,
Record, Doc. No. 485, Exhibit D (emphasis in original).  Rather than
embarking, as the Court does, on what amounts to a fact-finding mission,
which the courts below eschewed, about the fact and provability of this
pass-on, we should decide this case on the basis that there has been a
complete pass-through of the overcharge.  On that basis, it is evident that
the concerns underlying the decision in Illinois Brick do not support the
judgment below.  Rather, we should follow the plain intent of MDRV 4 that
the victims of anticompetitive conduct be allowed the remedy provided by
the section.
    Illinois Brick barred indirect purchaser suits chiefly because we
feared that permitting the use of pass-on theories under MDRV 4 would
transform these treble-damages actions into massive and inconclusive
efforts to apportion the recovery among all potential plaintiffs that could
have absorbed part of the overcharge--from direct purchasers to middlemen
to ultimate consumers.  431 U. S., at 737.  As Judge Posner has written,
"[t]he optimal adjustment by an unregulated firm to the increased cost of
the input will always be a price increase smaller than the increase in
input cost, and this means that the increased cost will be divided between
the two tiers, the direct and the indirect purchasers--but in what
proportion will often be hard to determine, even by sophisticated
techniques of economic analysis.  This is a central insight of the Illinois
Brick decision."  Illinois ex rel. Hartigan v. Panhandle Eastern Pipe Line
Co., 852 F. 2d 891, 894 (CA7 1988).
    In this case, however, it is regulation rather than mar- ket forces
that determines the amount of overcharge that the utility passes through to
its residential customers.  The rates of utilities are determined by law
and are set at a level designed to allow a fair return on a rate base that
includes the cost of furnishing the service, plainly including in this case
the cost of gas purchased from the pipelines and resold to customers.  It
is fanciful, at least unrealistic, to think that a utility entitled to pass
on to its customers the cost of gas that it has purchased will not do so to
the maximum extent permitted by law.  Furthermore, petitioners assert that
in this case the applicable law requires that such cost be passed on to
consumers.  And, as we have said, the Tenth Circuit opinion reflects the
likelihood of a perfect and provable pass-on.
    Of course, to recover in a case like this, the plaintiff must prove
that the utility paid the pipelines an illegally high price and must
demonstrate the amount of the overcharge.  That amount is included in the
rates charged by the utility and hence is passed through to the consumer.
The result is that determining the injury inflicted on consumers involves
nothing more than reading their utility bills, which reveal the amount of
gas purchased by them at a price which includes the amount of the illegal
overcharge passed through to them.  Where it is clear that the entire
overcharge is passed through, there can be no claim that indirect
purchasers cannot prove the extent of their damage caused by a rate
calculated on a rate base inflated by an illegal price paid for gas.
    The Court contends that the apportionment problem is not so simple.  It
maintains that, even where a utility raises its rates to compensate for the
overcharge and passes the overcharge through to the indirect purchasers, an
apportionment problem still exists because "to show that a direct purchaser
has borne no portion of an overcharge, the indirect purchaser would have to
prove, among other things, that the direct purchaser could not have raised
its rates prior to the overcharge."  Ante, at 6.  The problem identified by
the majority is not peculiar to indirect purchaser suits.  In antitrust
cases where suppliers increase their prices, courts frequently must
separate the price increase attributable to anticompetitive conduct (i. e.,
the "overcharge") from the price increase attributable to legitimate
factors.  This type of calculation "has to be done in every case where the
plaintiff claims to have lost sales because of the defendant's unlawful
conduct and the defendant argues that the loss was due partly or entirely
to other factors."  Panhandle Eastern, supra, at 897; see Bigelow v. RKO
Radio Pictures, Inc., 327 U. S. 251 (1946).  The problem identified in
Illinois Brick was entirely different: there, we were concerned that it
would unduly complicate litigation to require courts to separate the
portion of the overcharge absorbed by the direct purchaser from the portion
of the overcharge passed onto the indirect purchaser.  As argued above,
this difficulty is not a concern in the pres ent case. {1}  It is at least
very doubtful that a utility that is in position to secure a rate increase
on grounds having nothing to do with the price paid for its gas, would fail
to request a rate increase that included as well the entire amount paid for
gas purchased from pipelines and sold to consumers.
    Illinois Brick also observed that granting standing to the indirect
purchasers in that case would lead to the under enforcement of the
antitrust laws.  431 U. S., at 745-747. In the cases where there is "a
perfect and provable pass- through," however, the opposite is true for two
reasons.  First, because the pass through of the overcharge is complete and
easily demonstrated, the indirect purchasers--and the States in their
parens patriae capacity--may readily discover their injury.  Second,
although the utility could sue to recover lost profits resulting from lost
sales due to the illegally high price, its injury is not measured by the
amount of the illegal overcharge that it has passed on, and hence the
utility would have no incentive to seek such a recovery.
    The majority suggests that, even where a utility passes the entire
overcharge through to the indirect customers, the utility nonetheless might
actively prosecute antitrust claims because the state regulatory commission
may allow the utility to keep any damages that the utility recovers.  But
the utility commissions cannot allow an antitrust recovery forbidden by
federal law.  Given a pass-through, the customer, not the utility, suffers
the antitrust injury and it is the customer or the state on their behalf
that is entitled to recover treble damages.  In any event, it seems to me
that the majority conjures up a very strange utility commission, the
possible existence of which the court fails to document.
    A third consideration prompting our decision in Illinois Brick was our
belief that permitting indirect purchaser suits might subject antitrust
defendants to multiple liability.  430 U. S., at 730-731.  Again however,
where there is a "per- fect and provable" pass through, there is no danger
that both the utilities and the indirect purchasers will recover dam- ages
for the same anticompetitive conduct because the utilities have not
suffered any overcharge damage: the petitioners will sue for the amount of
the overcharge, while the utilities will sue for damages resulting from
their lost sales.
    The majority argues that, even "[l]eaving aside the apportionment
issue" (i. e., assuming that there is no apportionment difficulty as the
Tenth Circuit did in affirming summary judgment), the multiple recovery
problem identified in Illinois Brick still exists.  Ante, at 9.  I
disagree.  Illinois Brick "focused on the risk of duplicative recovery
engendered by allowing every person along a chain of distribution to claim
damages arising from a single transaction that violated the antitrust
laws."  Blue Shield, 457 U. S., at 474-475.  The danger of multiple
recoveries does not exist aside from the apportionment difficulty; rather,
it stems from it.  If only defensive use of a pass-through defense were
barred, or if it were extremely difficult to ascertain the percentage of an
overcharge that the utility passed through, then the supplier of natural
gas might potentially have to pay overlapping damages to successive
purchasers at different levels in the distribution chain.  But where there
is no apportionment difficulty, there is no comparable risk.
    In sum, I cannot agree with the rigid and expansive holding that in no
case, even in the utility context, would it be possible to determine in a
reliable way a pass-through to consumers of an illegal overcharge that
would measure the extent of their damage.  There may be cases, as the Court
speculates, where there would be insuperable difficulties.  But we are to
judge this case on the basis that the pass- through is complete and
provable.  There have been no findings below that this is not the fact.
Instead, the decision we review is that consumers may not sue even where it
is clear and provable that an illegal overcharge has been passed on to them
and that they, rather than the utility, have to that extent been injured.
    None of the concerns that caused us to bar the indirect purchaser's
suit in Illinois Brick exist in this case.  For that reason, rather than
extending the Illinois Brick exception to MDRV 4's grant of a cause of
action to persons injured through anticompetitive conduct, I would hold
that the petitioners in this case have standing to sue.  This result would
promote the twin antitrust goals of ensuring recompense for injured parties
and encouraging the diligent prosecution of antitrust claims.

 
 
 
 
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1
    The majority also suggests that "difficult problems of timing might
necessitate apportioning overcharges if we allowed indirect suits by
utility customers.  Even if, at some point, a utility can pass on 100
percent of its costs to its customers, various factors may delay the
passing on process."  Ante, at 7-8.  This suggestion, as suggested by the
words "might" and "may," is quite speculative.  It is much more realistic
to believe that sooner or later, the customer will foot the cost of
overpriced gas.  If timing was such a problem, the Tenth Circuit would not
have assumed a "perfect and provable" pass-through.
